China Brief | Edition 02 - Canada West FoundationCanada West Foundation

Edition o2: The debate around the potential sale of one of Canada’s major construction companies to a China SOE heats up; more chest-thumping on the China-U.S. trade spat; and a look at what the Canadian Senate did to get the Chinese government riled up.

Quote of the week

“At a time when Western leaders are struggling to explain what future they see for their people, [Chinese President] Xi heralded a ‘new era’ for China, one that brings his country to the global center stage. Dysfunction in Washington has allowed Xi to offer his country as a leader on trade and the fight to contain climate change… Pax Americana is finished, and Xi will have a say in whatever comes next.”
• Time’s coverage of Xi Jinping in its Time 100 issue

One Big Story: The Aecon national security review lingers – and remains divisive

The federal government continues to conduct its national security review of the $1.5 billion sale of Aecon Group (Canada’s third largest construction company) to China Communications Construction Company – and the debate over it is heating up.

Back story

In October 2017, Aecon announced that China Communications Construction Company International Holding (CCCC) would purchase Aecon for nearly $1.5 billion. CCCC is majority owned by the Chinese government. Almost immediately, there was concern about a Chinese state-owned enterprise owning a major Canadian company. The sale was under review by the federal government last fall, in order to determine if the sale was a “net benefit” to Canada. In February, the federal government announced that it would also review the sale under section 25.3 of the Investment Canada Act to determine if the sale could threaten Canada’s national security.

Aecon Group is Canada’s third largest construction company, employing nearly 10,000 people. It has been in operation since 1877. It is mainly involved in large construction projects: in 2016, this included the Port Mann project in Vancouver; the Anthony Henday Drive Project in Edmonton; and the upgrade of Regina’s wastewater treatment plant, among others. It was involved in constructing the CN Tower, Vancouver’s SkyTrain, and the Halifax Shipyard.

Why is it heating up now?

Ottawa has the power to take 75 days for a security review, without needing permission of the investor. It can continue after the 75-day deadline, but only if the investor and Ottawa both agree it is necessary. That deadline has now passed (it’s been 77 days as of today). Aecon is losing money while this is on hold, and it’s likely it will want Ottawa to wrap up quickly. Additionally, China seems unimpressed with the security review dragging on – the Chinese ambassador to Canada recently called opposition to the Aecon takeover “immoral.”

Who’s arguing what?

• A number of people have come out opposed to the Aecon sale. A Canadian senator argued recently that allowing Chinese SOEs to invest in Canada is dangerous, due to their lack of transparency. A former CSIS official claims that purchase of Aecon by CCCC is a national security risk because Aecon is involved in critical Canadian infrastructure. This argument was similar to a law professor’s argument, who said that this should be one of the rare sales Canadian officials shut down.
• Aecon has hit back at these claims: two people associated with the sale – who are also former federal ministers – argue that they would never support a deal that jeopardizes Canadian national security.

What’s next?

Well, now we wait – although probably not for long. The federal government faces pressure from all sides, and will likely announce a decision soon.

Bottom line:

This potential sale has huge ramifications, as it will set the stage for where Chinese companies can – or can’t – invest in Canada. It will certainly influence our relationship with our second-largest trading partner.

This week on the noise-o-meter…

The noise-o-meter tells us how many articles discuss China in the context of one of the four western provinces.[i] As is typical, China is discussed far more in the British Columbian context than the Prairie context, although less than in the last Brief. Articles about Alberta focused on an upcoming trade mission for two Albertan politicians. Articles mentioning Saskatchewan, Manitoba, and B.C. largely focused on the U.S.-China trade spat.

Stories from the West

• From B.C.’s New Westminster Record, an article on China’s economic growth continuing steadily, despite the US-China trade spat.
• From Global News, an article on Edmonton Mayor Don Iveson’s plan to pitch Alberta’s airports on trade mission to China.
• From Estevan Mercury, a dive into foreign companies working with Alibaba, the Chinese e-commerce giant.
• And finally, from the Calgary Herald, a look at cuddly pandas – and why they’re so important.

Issues that matter

Trade and Investment

The U.S.-China trade spat remains a huge issue (check out the last Brief for a primer). Some updates:
• This morning, reports surfaced that China is not going to bow to the U.S.’s two largest demands: a cut of America’s trade deficit by $100 billion and cutting their own funding to domestic advanced technology industries. Bottom line – this trade faceoff will not be wrapped up quickly.
• China is looking for European allies. It looks like France is taking China’s side.
• The International Monetary Fund has offered its two cents – Christine Lagarde argues that the spat is bad for global investor confidence.
• A deep dive from the New York Times that argues the U.S. is winning the trade spat – for now.
• Things may be cooling down, or about to get worse. There are plans for American officials to visit China to discuss the trade spat.
• Finally, a close look at what the trade spat’s global ramifications.

In other trade news:
• China’s Daqong Global Credit rating company has downgraded Canada’s credit outlook to negative.
• The head of the Asian Infrastructure Investment Bank talks about why he thinks Canada’s new membership in the Bank will create opportunities for Canadian
• And, finally: what do China and Canada’s western provinces actually trade? We dive into the data to find out.

Agriculture

A key battle in the U.S.-China trade spat is being fought over sorghum, a crop that sorghum farmers in America mainly sell to China.

• On April 17, China hit sorghum producers from the US with a 179% deposit – what essentially amounts to a tariff. Since then, sorghum exports to China from the U.S. have tanked, resulting in a sorghum armada on its way to China pulling a U-turn in the middle of the Pacific. Bids for sorghum have now dried up.
• This issue is an important one for Canadian farmers to keep an eye on, as much of our trade with China is in key agriculture commodities such as canola, where China is our top customer.

Alibaba, China’s e-commerce giant, has been instrumental in Thai farmers selling their products online in China.

Clean Energy & Natural Resources

• China has made solar panels cheap – and now it’s looking to do the same for electric buses.
• Cleantech has become a key area of research collaboration between Chinese and Canadian researchers – and could be a great way to improve the countries’ relationship.
• China has launched a wind power initiative to cope with lack of infrastructure: holding a lottery for cities, in order to ease strain on the power grid.
• There is an ambitious plan for a new economic zone in China: to be run by 100% clean energy.

Canada-China relations

• The Canadian Senate passed a motion calling for an end to China’s actions in the South China Sea – a move the Chinese government was not impressed by.
• The Five Eyes – of which Canada is a member, along with Australia, New Zealand, the UK, and the US – is looking to counter China’s Pacific influence.
• Vancouver has officially apologized for its historically racist treatment of Chinese immigrants, which was reported on in Chinese media.
• Canada and China, along with Cuba, are launching a joint initiative studying the human brain.

By the Numbers

Data from the China-Canada Investment Tracker, China Institute, University of Alberta, accessed April 27.

Interesting tidbits

• China’s $1 billion white elephant (Apr 17) Bloomberg
• Documentary reveals the man behind the SOS letter from China’s notorious Masanjia labour camp (Apr 26) The Globe and Mail
• Time 100 List: Xi Jinping in leaders’ section
• Disney emphasizes China roots in Shanghai amid trade tension (Apr 26) National Post
• A Chinese farm is breeding 6 million cockroaches a year for medicine (Apr 20) Quartz

That’s all for today! Questions, comments? Send them my way – Sarah Pittman, policy analyst

The China Brief is a compilation of stories and links related to China and its relationship with Canada’s West. The opinions expressed in the links are those of the articles’ authors and don’t necessarily reflect the views of the Canada West Foundation and our affiliates.

[i] Media measurement is provided by a third-party, independent media monitoring service. To be included in the noise-o-meter, “China” must be in the title, and one of the four western provinces somewhere in the article. While not a perfect system, this gives us an idea of how much China and the West are being discussed together.

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China Brief | Edition 02